Chetan Sabharwal vs Assistant Commissioner Of Income Tax Circle 28(1) New Delhi

J.B. PARDIWALA, J.:

For the convenience of exposition, this judgment is divided into the following parts:-

A. FACTUAL MATRIX

B. SUBMISSIONS ON BEHALF OF THE APPELLANTS

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT

D. ISSUES FOR DETERMINATION

E. ANALYSIS

(I). WHETHER THE IMPUGNED NOTICE DATED 31.03.2015 REOPENING OF ASSESSMENTS OF THE APPELLANTS FOR THE AY 2008-09 AND AY 2009-10 SATISFIES THE ANVIL OF “REASON TO BELIEVE” UNDER SECTIONS 147-148 OF THE ACT AND, THUS, IS VALID?

F. CONCLUSION

Leave granted.

These connected appeals arise from the self same judgment and order dated 06.08.2019 passed by the High Court of Delhi in Writ Petition (C) No. 10898 of 2015 preferred by the appellant herein, by which the High Court dismissed the said writ petition and thereby upheld the reassessment proceedings initiated by the respondent-revenue under Sections 147 and 148 of the Income Tax Act, 1961 respectively (hereinafter referred to as “the Act”) in the case of the appellants for AY 2008-09 and AY 2009-10, respectively.

Mr. Chetan Sabharwal, the appellant-assessee herein, along with his brother – Mr. Nitin Sabharwal, the appellant-assessee in the connected matters, and two other shareholders, entered into two Share Purchase Agreements dated 19.10.2007 (“SPA”) with GYS Real Estate Pvt. Ltd/ (“Buyer Company”) for sale of 7.5 Lakh equity shares of one Pawan Impex (P.) Ltd. (“Company No. 1”) and of 2.5 Lakh equity shares of another SVIIT Software (P.) Ltd. (“Company No. 2”) held by each of the parties for a total sale consideration of Rs. 195 Crore and Rs. 60 Crore, respectively. The appellant and other selling shareholders were each entitled to 1/4^th share of this total consideration. With respect to the company nos. 1 and 2, an amount of Rs. 110 Crore and Rs. 22.5 Crore, respectively, was received as advance during FY 2007-08/AY 2008-09 out of the sale consideration of Rs. 195 Crore and Rs. 60 Crore, respectively. The appellant’s 1/4^th share in this advance consideration amounted to Rs. 27.5 Crore and 5.62 Crore, respectively. Further, the buyer company made an additional payment of Rs. 18 Crore with respect to the sale of the company no. 2’s share. The appellant’s 1/4^th share in this additional payment amounted to Rs. 4.5 Crore. Therefore, the total of the 1/4^th share of the appellant in advance consideration and additional payment aggregated to an amount of Rs. 37.64 Crore.

On 25.09.2008, the appellant filed his ITR for AY 2008-09, declaring a loss of Rs. 90.37 Lakh, which was accompanied by the computation of total income along with the tax audit report. In the return in Form ITR 4, particulars of the tax audit report obtained had been filed, and therein a sum of Rs. 37.64 Crore has been shown under the head sundry credit, which included the amount of liability in the name of the buyer company aggregating to a tune of Rs. 37.62 Crore.

As per the terms embodied in Article 1 read with Article 4 of the SPA, the ‘Closing’ of sale of equity shares of company nos. 1 and 2 respectively in favour of the buyer company had to take place subject to fulfilment of the conditions as stated in Article 4. At the time of Closing, the total consideration of Rs. 195 Crore payable for the shares of company no. 1 was reduced by Rs. 63.79 Crore, being the amount of unsecured loan standing in the books of the company, and by Rs. 3 Crore, being the estimated cost of construction of building as per the SPA, and the buyer company accordingly paid a net sale consideration of Rs. 128,20,66,501, of which the appellant’s 1/4^th share was Rs. 32,05,16,625. Similarly, with respect to company no. 2, the total consideration of Rs. 60 Crore was reduced by Rs. 18.99 Crore, being the amount of unsecured loan standing in the books of the company, and by Rs. 60 Lakh, being the estimated cost of construction of building as per the SPA, and the buyer company accordingly paid a net sale consideration of Rs. 40,40,84,770, of which the appellant’s 1/4^th share was Rs. 10,10,21,192.

On 17.11.2008, the shares of company no. 1 were dematerialised upon the request of the buyer company dated 19.11.2008, and were transferred to Religare Securities Ltd. (Depositary under NSDL), an associate company/concern of the Religare Group. On 25.09.2009, the appellant deposited amounts of Rs. 28 Crore and Rs. 3.915 Crore, respectively, in the Capital Gain Savings Bank Account No. 307802090000006 with the Union Bank of India, in accordance with Section 54F(4) of the Act.

On 21.04.2010, the two appellants jointly purchased an undivided and undefined 1/2 share in a residential property located in Delhi for an aggregate consideration of Rs. 61 Crore. The said property was purchased out of the capital gains arising in the hands of the appellant and his brother from the sale of shares of company no. 1 and company no. 2, respectively, within a period of 2 years, thereby entitling the appellant to the benefit of Section 54F of the Act.

On 06.08.2010, the respondent issued a notice under Section 142(1) of the Act, seeking an explanation on the nature of the transaction with the buyer company amounting to Rs. 37.62 Crore, and the production of the return documents of the buyer company for the last 5 years, among other details. In response to the queries raised by the respondent, the appellant submitted the requisite details along with supporting documents on 05.10.2010.

Thereafter, on 13.12.2010, the respondent issued notices under Section 133(6) of the Act to company no. 1, company no. 2 and the buyer company, calling for information in relation to the aforementioned transaction of sale of shares by the appellant. On 16.12.2010, the company no. 1 and company no. 2 filed their reply to the said notice, submitting the documents sought thereunder. Similarly, on 16.12.2010, the buyer company filed its reply to the said notice, submitting the documents sought.

On 22.12.2010, the assessment under Section 143(3) of the Act was framed for AY 2008-09, whereby the returned income of the appellant was accepted.

Subsequent to the completion of the assessment, the Investigation Unit, Noida, under the DGIT (Inv.), Lucknow, conducted enquiries into the value of the shares of company no. 1 and company no. 2 and prepared a report (“Investigation Report”). The report concluded, prima facie, that the shares were overvalued when compared with the cost of their land and building, which was much lower than the transaction amounts of Rs. 195 Crore and Rs. 60 Crore, respectively. The enquiries also revealed that the appellants purchased one-half share of property at Sikandara Road, New Delhi in April 2010 through a court auction, and that the major source of this investment was the sale proceeds of the shares of company no. 1 and company no. 2.

Thereafter, on perusal of the investigation report and after a gap of 4 years, the respondent issued a notice dated 31.03.2015 under Section 148 of the Act (“Impugned Notice”) for reassessment in the case of the appellant for AY 2008-09, calling upon the appellant to file his return of income. By letter dated 24.04.2015, the respondent communicated the recorded reasons under Section 148 of the Act for reopening the case of the appellant. On 20.05.2015, the appellant filed legal objections to the initiation of the impugned reassessment proceedings for AY 2008-09.

On 24.09.2015, the respondent passed an order rejecting the legal objections of the appellant for AY 2008-09. Aggrieved by the said rejection of the legal objections against the initiation of reassessment proceedings for AY 2008-09, the appellant filed a writ petition bearing W.P.(C) No. 10898 of 2015 before the High Court. The High Court, by the impugned judgment and order, dismissed the writ petition filed by the appellant, thereby upholding the initiation of reassessment proceedings by the respondent under Section 147 of the Act in the case of the appellant for AY 2008-09.

In such circumstances referred to above, the appellant is here before us with the present appeal.

Mr. Mukul Rohatgi, the learned senior counsel appearing for the appellant, submitted that, after the expiry of 4 years from the end of the relevant AYs, the respondent issued impugned notice dated 31.03.2015 under Section 148 of the Act, initiating reassessment proceedings in the case of the appellant and his brother for AY 2008-09 and AY 2009-10, and that identical reasons to believe were recorded by the respondent under Section 148(2) of the Act in the case of both of them for both the years. He further submitted that it is trite law that the initiation of reassessment proceedings under Sections 147 and 148 of the Act, respectively, is required to be tested on the reasons to believe as they stand recorded by the respondent.

The learned senior counsel argued that there is an absence of valid “reasons to believe” demonstrating escapement of income in the present case. He submitted that, on a bare perusal of the reasons recorded for the said notice, the reasons recorded by the respondent for alleging escapement of income in the hands of the appellant and his brother are legally unsustainable inasmuch as:

The learned senior counsel further submitted that, in terms of the Proviso 1 to Section 147 of the Act, reassessment beyond 4 years from the end of the relevant AY, where an assessment has been completed under Section 143(3), is permissible only if income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment, and that in the absence of such failure during the earlier scrutiny proceedings, reassessment initiated after the said period is illegal. Reliance was placed on various decisions to fortify the submission that the respondent must come into possession of some fresh tangible information relating to a concluded assessment which exposes the falsity of the statement made by the assessee at the time of the original assessment.

It was submitted that, in the case of the appellant, the transaction of sale of shares of company no. 1 and company no. 2, respectively, to the buyer company was fully disclosed in the accounts and the ITRs, and was thoroughly examined, and that all information and evidence was duly furnished for AY 2008-09 and AY 2009-10 respectively. He pointed out that at no stage has any failure on the part of the appellant to disclose the primary facts been alleged or made out. In this background, it was argued that since such failure to disclose is a jurisdictional precondition under the Proviso 1 to Section 147 of the Act, its absence renders the reassessment initiated beyond 4 years from the end of the relevant AY without jurisdiction.

The learned senior counsel further submitted that the reassessment could be said to have been initiated on a mere change of opinion, without any allegation, let alone evidence, of a failure on the part of the appellant to disclose the primary facts. It was submitted that, in the case of the appellant, the record clearly demonstrates that the transaction of sale of shares of company no. 1 and company no. 2 to the buyer company was specifically and thoroughly examined, and that it was only thereafter that the respondent found merit in the explanation offered by the appellant and accepted the returned income without drawing any adverse inference. He submitted that the mere fact that such opinion formed by the respondent in favour of the appellant did not find specific mention in the body of the assessment order does not, in any way, dilute the formation of the opinion itself.

Ms. Nisha Bagchi, the learned senior counsel, along with Mr. K.M. Nataraj, the learned ASG, appearing for the respondent-revenue, submitted that the investigation report, which was made available to the respondent by the Investigation Unit, Noida, subsequent to the completion of the assessments, pointed out the overvaluation of the shares and constituted specific, reliable and tangible information sufficient to form a reason to believe that income had escaped assessment. The said investigation report concludes as follows:

It was further submitted on behalf of the respondent-revenue that as per the settled law, whether the facts stated in the letter are true or not is not the concern at this stage, as the truth of the allegations may be established after making the necessary enquiries, and that, at the stage of issuance of the notice, the only question is whether there was credible material on which a reasonable person could have formed the requisite belief. On these parameters, it was contended that the notices have been validly issued on a reason to believe formed on the basis of tangible material, and that the respondent has duly recorded reasons which have a live nexus to the notice. After perusing the letter dated 15.10.2015, the other correspondence in this regard and the report of the Investigation Unit, the respondent believed that the shares had been overvalued, that the capital gains were adjusted in future years and that deductions were also claimed under Section 54F of the Act. The AO had recorded that “with respect to the share transactions, the capital gain earned, and deduction on the same claimed. I have the reasons to believe that substantial amount has escaped assessment during the assessment years 2008–09 and 2009–10”.

In respect of the assessee - Mr. Chetan Sabharwal, the respondent-revenue submitted that the original assessment orders for both AYs passed under Section 143(3) of the Act do not indicate that the respondent formed any opinion on the issue on which reopening has been ordered, and that the record indicates that the issue of overvaluation of shares was not considered during the scrutiny assessment. It was contended that, the order under Section 143(3) of the Act being a non-speaking order, no opinion can be attributed to the respondent on the issues sought to be raised in the proposed reassessment proceedings. As regards the requirement under the proviso to Section 147 of the Act that the under-assessment must have occurred by reason of, inter alia, the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, it was submitted that the same essentially involves questions of fact, which stand relegated to the adjudicating authority. The Act postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. It was further submitted that the Assistant Commissioner of Income Tax, while disposing of the objections against reassessment by his order dated 24.09.2011, specifically recorded that the DDIT (Investigation), Noida, had clearly mentioned that the mechanism through which the net worth of the shares was calculated, and the due diligence report of the shares, were not provided despite the assessee being repeatedly asked to do so.

In respect of the assessee - Mr. Nitin Sabharwal, it was further submitted on behalf of the respondent-revenue that only an intimation under Section 143(1) of the Act was issued accepting his returns, and that the notice was issued within the time prescribed under Section 149(1)(b) of the Act on the basis of a valid reason to believe. It was contended that the contentions relating to change of opinion or failure to make full disclosure are not relevant to the reassessment proceedings in his case. It was further submitted that the only criteria for assessing income under Section 147 of the Act are the existence of a valid reason recorded by the respondent and the satisfaction of the jurisdictional Principal Commissioner, both of which stand satisfied on the facts of the present assessment.

Having heard the learned counsel appearing for the parties and having gone through the materials on record, the sole question that falls for our consideration is whether the impugned notice dated 31.03.2015 seeking to reopen the assessments of the appellants for the AY 2008-09 and AY 2009-10, respectively, satisfies the anvil of “reason to believe” under Section 147-148 of the Act and, thus, is valid?

(I). Whether the impugned notice dated 31.03.2015 reopening of assessments of the appellants for the AY 2008-09 and AY 2009-10 satisfies the anvil of “reason to believe” under Section 147-148 of the Act and, thus, is valid?

Before dealing with the rival submissions canvassed on either side, a bare reading of Sections 147-148 of the Act, respectively, that deal with reopening of the assessment must be undertaken.

Section 147 of the Act, as it stood on 31.03.2015, reads as follows:

(Emphasis Supplied)

Section 148 of the Act, as it stood on 31.03.2015, reads as follows:

(Emphasis Supplied)

A conjoint reading of Sections 147 and 148 of the Act respectively makes it clear that the power to reopen an assessment is not unfettered and is hedged with conditions, the first being that the AO must have reason to believe that income chargeable to tax has escaped assessment, which is the jurisdictional foundation for assuming the power to reassess. Once this threshold is met, the AO is also empowered to bring to tax any other escaped income that comes to his notice in the course of the reassessment proceedings, provided the reason or at least one of the reasons, projected for reopening is eventually found to be escaped income. However, where the original assessment has been completed under Section 143(3) of the Act, a further safeguard is introduced by the proviso to Section 147, whereby a notice beyond 4 years from the end of the relevant AY can be sustained only if the escapement of income is attributable to the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, and the existence of such failure thus becomes a condition precedent to the exercise of jurisdiction. Further, the power to reopen an assessment is not confined to cases where the assessee has concealed his income, and extends also to cases where, though there has been no concealment, the respondent has reason to believe, in consequence of tangible material in his possession, that income has escaped assessment. Section 148 then operates as the procedural safeguard, as it requires service of a notice on the assessee before the reassessment is undertaken, and, more importantly, mandates that the AO record his reasons before issuing the notice.

In the present case, the revenue’s stand is that it issued the impugned notice under Section 148 of the Act on the strength of the investigation report submitted by the DGIT Investigation Unit, Noida, which constituted specific and tangible material on the overvaluation of shares. Thus, at the stage of issuing the notice, the only question that would be relevant is whether there was any credible material on which a reasonable person could form the requisite belief, the truth of the allegations being a matter for enquiry in the reassessment proceedings. The assessees’ stand is that the reasons recorded for the impugned notice proceed solely on the alleged overvaluation of shares, which cannot result in escapement of income in the hands of the sellers and raises no doubt on the genuineness of the sale, and that the grounds of colourable deferment of LTCG and the claim under Section 54F of the Act, raised later in the order disposing of the objections, are an improvement on the reasons recorded. Further, the transaction having been examined in the scrutiny assessment under Section 143(3) of the Act, the reassessment amounts to a mere change of opinion.

In order to determine whether the impugned notice satisfied the test of “reason to believe” as required under section 147 of the Act, we have to understand the meaning and scope of the said expression.

In the case of Calcutta Discount Co. Ltd. v. ITO, reported in (1961) 41 ITR 191 (SC), the Constitution Bench of this Court observed that the duty of the assessee is to disclose fully and truly all primary relevant facts, and that it does not extend beyond this. It was further observed that, if there were in fact some reasonable grounds for thinking that there had been non-disclosure of any primary fact having a material bearing on the question of under-assessment, that would be sufficient to give the AO jurisdiction to issue the notice, and that the adequacy of such grounds is not open to the court’s investigation. It was held that all that is necessary is that the AO had, when he assumed jurisdiction, some prima facie grounds or reasons for thinking that there had been some non-disclosure of material facts, and that it is the duty of the assessee who contends that jurisdiction was lacking to establish that the AO had no material at all before him for believing that there had been such non-disclosure. The relevant observations made by this Court are as under:

(Emphasis Supplied)

The decision in Calcutta Discount (supra) was later also followed in the case of S. Narayannappa v. CIT, reported in (1967) 63 ITR 219 (SC).

In the case of Chhugamal Rajpal v. S.P. Chaliha, reported in (1971) 1 SCC 453, the AO had issued a notice under Section 148 of the Act on a report which set out neither the reasons nor the material for his conclusion, and which showed only a vague feeling that the transactions were bogus. This Court held that, before issuing a notice under Section 148 of the Act, the AO must either have reason to believe that income chargeable to tax has escaped assessment by reason of the failure of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment, or, notwithstanding the absence of such failure, have reason to believe, in consequence of information in his possession, that income chargeable to tax has escaped assessment, and that, unless the requirements of Section 147 are satisfied, the AO has no jurisdiction to issue the notice. It was held that the AO had no material satisfying either clause, that a conclusion that a matter requires investigation is not the same as having reasons to issue a notice under Section 148, and that the Commissioner had mechanically accorded permission without recording his own satisfaction. The relevant observations are as under:

(Emphasis Supplied)

In the same year, this Court, in the case of Sheo Nath Singh v. Appellate Assistant Commissioner of Income Tax, Calcutta, reported in 1972 (3) SCC 234, observed that the expression “reason to believe” requires a belief of an honest and reasonable person based upon reasonable grounds, and that the AO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. It was further observed that the AO would act without jurisdiction if the reason for his belief does not exist or is not material or relevant to the belief required by the section, and that, while the Court can always examine this aspect, it cannot investigate the sufficiency of the reasons for the belief. The relevant observations are as under:

(Emphasis Supplied)

Thereafter, in the case of ITO vs. Lakhmani Mewal Das, reported in [1976] 103 ITR 437 (SC), this Court observed that the adequacy of the grounds or reasons is not a matter for the Court to investigate, and that the sufficiency of the grounds which induce the AO to act is not a justiciable issue. It was further observed that, while it is open to the assessee to challenge the existence of the belief, the sufficiency of the reasons for the belief cannot be challenged, and that the expression “reason to believe” does not mean a purely subjective satisfaction on the part of the AO, as the reason must be held in good faith and cannot be merely a pretence. This Court held that the reasons for the formation of the belief must have a rational connection with or a relevant bearing on the formation of the belief, and that rational connection postulates a direct nexus or live link between the material coming to the notice of the AO and the formation of his belief that income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts. It was held that, though the courts cannot go into the sufficiency or adequacy of the material and substitute their own opinion for that of the AO on whether action should be initiated, yet it is not any and every material, however vague, indefinite, distant, remote or far-fetched, which would warrant the formation of the belief relating to escapement of income. Nevertheless, the courts can still examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief, and are not extraneous or irrelevant for the purpose of the section. The relevant observations are as under:

(Emphasis Supplied)

Similarly, in Ganga Saran & Sons (P). Ltd. v. ITO, reported in (1981) 130 ITR 1 (SC), this Court observed that the words “has reason to believe” in Section 147(a) are stronger than the words “is satisfied”, and that the belief entertained by the AO must not be arbitrary or irrational, but must be reasonable, that is, based on reasons which are relevant and material. It was held that, while the Court cannot investigate the adequacy or sufficiency of the reasons which weighed with the AO, it can examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief. It was further held that, if there is no rational and intelligible nexus between the reasons and the belief, so that no one properly instructed on facts and law could reasonably entertain the belief, the AO could not have reason to believe that income had escaped assessment, and the notice would be liable to be struck down as invalid. The relevant observations are as under:

(Emphasis Supplied)

Moreover, in the case of Phool Chand Bajrang Lal v. ITO, reported in (1993) 4 SCC 77, this Court held that the AO acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Act only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that income has escaped assessment by reason of the failure of the assessee to make a true and full disclosure of all material facts during the concluded assessment proceedings. It was held that the AO may start reassessment either because fresh facts come to light or because information comes into his possession which tends to expose the untruthfulness of the facts previously disclosed, and that, in such situations, it is not a case of mere change of opinion but of acting on fresh information. It was further held that, while the sufficiency of the reasons is not for the Court to judge, the Court may examine whether there was material on record from which the requisite belief could be formed, and whether that material had a rational connection or a live link with the formation of the belief. The relevant observations are as under:

(Emphasis Supplied)

In the case of CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., reported in (2008) 14 SCC 208, this Court held that the word “reason” in the phrase “reason to believe” means cause or justification, and that the AO need only have cause or justification to know or suppose that income has escaped assessment, without having finally ascertained the fact by legal evidence or conclusion. It was further held that, at the stage of initiation, what is required is a reason to believe and not the established fact of escapement of income, and that, at the stage of issuing the notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief, whether the material would conclusively prove the escapement being no concern at that stage. The relevant observations made by this Court are as under:

(Emphasis Supplied)

Further, in Income Tax Officer, Ward No. 16(2) v. Techspan India Private Limited and Another, reported in 2018 (6) SCC 685, this Court, by placing strong reliance upon the decision in CIT v. Kelvinator of India Ltd., reported in (2010) 2 SCC 723, held that the words “reason to believe” in Section 147 of the Act have to be interpreted schematically, as a liberal interpretation would confer arbitrary power on the AO to initiate reassessment proceedings merely on a change of opinion on the same facts and circumstances already considered by him in the original assessment, which could never have been the intention of the legislature. It was held that the provision was incorporated to empower the assessing authorities to reassess income on a ground which was not brought on record in the original proceedings and escaped the knowledge of the AO, and which has a material bearing on the outcome of the assessment order. It was further held that Section 147 of the Act does not permit reassessment merely because the AO takes a different view of the law on facts that were well within his knowledge at the time of the assessment, as doing so would amount to a power of review, whereas Section 147 confers only the power to reassess. The relevant observations made by this Court are as under:

(Emphasis Supplied)

The issue at hand recently fell for consideration before this Court in Sanand Properties (P) Ltd. v. CIT, reported in (2026) 488 ITR 337, wherein one of us, J.B. Pardiwala, J., speaking for the Bench observed that the expression “reason to believe” in Section 147 of the Act means cause or justification, and that the AO need not have finally ascertained the facts to prove the escapement of income. It was held that the validity of the reopening has to be ascertained by limiting the enquiry to the reasons recorded under Section 148 of the Act, and that the merits of the reopening cannot be looked into to justify or discredit it. It was further observed that, to decide whether the AO had reason to believe, only the materials which were before him at the time of initiating the proceedings are to be taken into account, and not any further materials which subsequently came to light, and that the AO must have some tangible material in his possession to conclude that income has escaped assessment before assuming jurisdiction under Section 147 of the Act. It was thus held to be settled law that a document not referred to in the reasons recorded cannot be used to justify the validity of the reopening, as the assessee must not be deprived of a fair opportunity to dispute such grounds. The relevant observations made by this Court are as under:

On a conspectus of the decisions discussed above, broadly the following principles emerge for the purpose of construing the meaning and scope of the expression “reason to believe”:

The revenue’s stand on this aspect is that the investigation report, which reached the respondent after the completion of the assessments, constituted fresh and tangible material, and that the order under Section 143(3) of the Act being a non-speaking order, no opinion can be attributed to the respondent on the issues sought to be raised in the reassessment proceedings. It was further contended that, in the case of Mr. Nitin Sabharwal, only an intimation under Section 143(1) of the Act was issued, so that the contentions of change of opinion are not relevant to the proceedings in his case. The appellants-assessees’ stand, on the other hand, is that the reassessment has been initiated on a mere change of opinion, as the transaction of sale of shares was fully disclosed in the accounts and the ITRs, and was specifically and thoroughly examined in the scrutiny assessment, including through independent enquiries from company no. 1, company no. 2 and the buyer company, before the returned income was accepted without any adverse inference. In view of the rival submissions, we must first understand what is meant by the expression “change of opinion” and its scope, before examining its applicability to the facts of the present case.

The meaning and scope of the expression “change of opinion” were explained by this Court in Kelvinator of India Ltd. (supra), wherein it was held that a mere change of opinion cannot, per se, be a reason to reopen an assessment. This Court observed that, although the power to reopen became wider with effect from 01.04.1989, when only one condition, namely reason to believe that income has escaped assessment, was retained, the widened power cannot be exercised on the basis of a mere change of opinion. The reason was explained by drawing a conceptual difference between the power to review and the power to reassess, the AO having only the latter, and it was held that, if the concept of change of opinion is removed from consideration, a review would take place in the garb of reopening. The concept was thus held to be a built-in check against misuse of the power, so that an AO who has already formed a view on a matter cannot reopen merely because he now takes a different view, and may do so only where there is tangible material having a live link with the formation of the belief. The relevant observations made by this Court are as under:

(Emphasis Supplied)

Thereafter, in Techspan India (supra), this Court held that, in order to determine whether a case is one of change of opinion or not, one has to look at its meaning in literal as well as legal terms. This Court observed that the words “change of opinion” imply the formulation of an opinion and then a change thereof, and that, in terms of assessment proceedings, it means the formulation of a belief by the AO resulting from what he thinks on a particular question, being a result of understanding, experience and reflection. This Court, relying on Kelvinator of India Ltd. (supra), further observed that the concept of change of opinion is an in-built test to check abuse of power by the AO, and that the AO has the power to reopen an assessment only if there is tangible material to conclude that income has escaped assessment, the reasons having a live link with the formation of the belief. It was further held that, before interfering with the proposed reopening on the ground that it is based only on a change of opinion, the court ought to verify whether the assessment earlier made has, either expressly or by necessary implication, expressed an opinion on a matter which is the basis of the alleged escapement of income. It was observed that, if the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the AO any opinion on the questions raised in the proposed reassessment proceedings, and that every attempt to bring to tax income that has escaped assessment cannot be absorbed by judicial intervention on an assumed change of opinion, even where the order of assessment does not address itself to the aspect sought to be examined. The relevant observations made by this Court are as under:

Further, in Sanand Properties (supra), this Court supported the decision of Kelvinator of India Ltd. (supra) and Techspan India (supra) on the aspect of “change of opinion”. This Court observed that, to constitute a change of opinion, there must first be a conscious application of mind and a formation of an opinion during the original assessment proceedings. It was held that a mere reference in the assessment order to an arrangement, derived from agreements involving different parties and separate subject matters, cannot be construed as a finding on the income in question. It was further observed that, where the AO’s discussion in the original assessment was confined to one agreement, and there was a perceptible lack of any inquiry or adjudication on the specific terms of the other, the plea of change of opinion is legally untenable, as a change of opinion presupposes the existence of a previously formed opinion. This Court thus held that, where no such opinion was formed in the first instance, the revenue is not precluded from reopening the assessment upon the discovery of facts suggesting that income has escaped assessment. The relevant observations made by this Court are as under:

On a conjoint reading of the aforesaid decisions, the following principles emerge on the expression “change of opinion” in the context of Section 147 of the Act:

Now, adverting to the facts of the present case, it has emerged that the appellant, along with his brother and two other shareholders, entered into SPAs dated 19.10.2007 with the buyer company for the sale of shares of company no. 1 and company no. 2 for a total consideration of Rs. 195 Crore and Rs. 60 Crore, respectively, the appellant being entitled to a 1/4^th share. On 25.09.2008, the appellant filed his ITR for AY 2008-09, declaring a loss of Rs. 90.37 Lakh, accompanied by the computation of total income and the tax audit report, wherein the sum of Rs. 37.64 Crore received as advance and additional payment was shown under the head sundry credit. At the time of Closing, the consideration was reduced by the unsecured loans standing in the books of the two companies and the estimated cost of construction of building, and the buyer company paid a net sale consideration of Rs. 128,20,66,501 and Rs. 40,40,84,770, of which the appellant's 1/4^th share was Rs. 32,05,16,625 and Rs. 10,10,21,192, respectively. On 25.09.2009, the appellant deposited Rs. 28 Crore and Rs. 3.915 Crore respectively in the Capital Gain Savings Bank Account with the Union Bank of India under Section 54F(4) of the Act, and on 21.04.2010, the appellant and his brother jointly purchased an undivided 1/2 share in a residential property in Delhi, claiming the benefit of Section 54F of the Act. In the original assessment proceedings, the revenue had issued a notice dated 06.08.2010 under Section 142(1) of the Act, seeking an explanation on the nature of the transaction with the buyer company amounting to Rs. 37.62 Crore and the production of the return documents of the buyer company for the last 5 years, among other details, to which the appellant replied with supporting documents on 05.10.2010.

Thereafter, on 13.12.2010, the respondent issued notices under Section 133(6) of the Act to the company no. 1, company no. 2 and the buyer company, respectively who filed their replies on 16.12.2010, and on 22.12.2010 respectively. The assessment under Section 143(3) of the Act was framed, accepting the returned income of the appellant. Subsequent to the completion of the assessment, the Investigation Unit, Noida, under the DGIT (Inv.), Lucknow, conducted enquiries and prepared a report, which concluded, prima facie, that the value of the shares of company no. 1 and company no. 2, respectively, was overvalued, going by the cost of land and building, which was much lower than the transaction amounts of Rs. 195 Crore and Rs. 60 Crore respectively. On 30.03.2015, the respondent sent the impugned notice with recorded reasons for reopening assessment. The relevant extract from the recorded reasons are as under:

From the above, it is evident that the reasons recorded in the impugned notice refer to the said investigation report, and state that the enquiries revealed that the appellant and his brother jointly purchased one half share of Property in Delhi, in April 2010, through a court auction, and that the major source of this investment was the sale proceeds of the shares of company no. 1 and company no. 2, respectively. The reasons further record that the total long term capital gain derived by the appellant was Rs. 40,38,40,170, out of which Rs. 31,91,50,000 was deposited in the Capital Gains Savings Bank Account before 30.09.2009 and the deduction under Section 54F of the Act was claimed, that the same was done by his brother, and that each of them had purchased a 1/4^th share in the said property for Rs. 9,33,69,928. On the strength of the information, the respondent recorded that the shares had been overvalued, that the capital gains were adjusted in future years and that deductions were also claimed. The implication recorded was that the SPAs were entered into in FY 2007-08 relevant to AY 2008-09, the consideration was received majorly in FY 2008-09 relevant to AY 2009-10, and the deduction under Section 54F of the Act was claimed on the same, on which the respondent recorded that he had reason to believe that a substantial amount had escaped assessment for AY 2008-09 and AY 2009-10 respectively.

Adverting to the first aspect, the duty of the assessee, as discussed above, is to disclose fully and truly all primary relevant facts, and all that is required at the stage of reopening is that the AO had some prima facie grounds for believing that there had been some non-disclosure of material facts. The reasons recorded indicate that the enquiries conducted by the Investigation Unit, Noida revealed that the appellant and his brother jointly purchased one half share of a property at Sikandara Road, Delhi in April 2010, and that the major source of this investment was the sale proceeds of the shares of company no. 1 and company no. 2, respectively. They also record that the LTCG derived by the appellant was Rs. 40,38,40,170, out of which Rs. 31,91,50,000 was deposited in the Capital Gains Savings Bank Account before 30.09.2009 and the deduction under Section 54F of the Act was claimed. The report further concluded that the value of shares was overvalued, going by the cost of land and building, which was much lower than the transaction amounts. These facts came to the respondent through the enquiries of the Investigation Unit, after the assessment had been completed on 22.12.2010. On this material, the respondent had prima facie reasons to believe that all material facts relating to the transaction had not been fully and truly disclosed in the original assessment, which is all that is required at this stage.

Further, it cannot be denied that the AO has the jurisdiction to initiate reassessment proceedings relying on some fresh facts having surfaced which were not previously disclosed, or because information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In the present case, the fresh facts that came to light through the Investigation Unit, Noida, after 22.12.2010 are one relating to the value of shares of company no. 1 and company no. 2 respectively as against the cost of land and building, and the investment of the sale proceeds in the property at Sikandara Road. In our view, what came to light afresh, through the investigation report, was the conclusion that the shares of company no. 1 and company no. 2 respectively were overvalued when compared with the cost of their land and building, which was much lower than the transaction amounts in the SPA, and that the major source of the investment in the property at Sikandara Road was the sale proceeds of those shares. That specific information was not available with the AO at the time of the original assessment, nor was such information disclosed by the appellant in those proceedings. In our opinion, the only question at the stage of issuing notice is whether there was relevant and credible material on which a reasonable person could have formed the requisite belief, and whether the material would conclusively prove the escapement is not the concern at that stage. At the time of issuing the impugned notice, the respondent had before him the investigation report stating that the shares were overvalued as against the cost of land and building, and the finding that the major source of the investment in the property was the sale proceeds of those shares. On this material, a reasonable person could form the belief that income had escaped assessment.

Further, we need not go into the adequacy or sufficiency of the grounds which induced the AO to issue the impugned notice under Section 148 of the Act as the same is not a justiciable issue. The courts have only to see whether there is a rational connection or a live link between the material and the formation of the belief. The reasons recorded indicate this link at each step. The bare perusal of the information would indicate that the respondent recorded that the shares had been overvalued, that the capital gains were adjusted in future years and that deductions were also claimed. The implication recorded is that the SPAs were entered into in FY 2007-08 relevant to AY 2008-09, while the consideration was received mainly in FY 2008-09 relevant to AY 2009-10, and the deduction under Section 54F of the Act was claimed on the same. It is from this material that the respondent recorded that he had reason to believe that a substantial amount had escaped assessment for both the AYs. The contention of the appellants that overvaluation of shares cannot result in escapement of income in the hands of the seller, if accepted, would amount to overlooking the fact that the reasons do not end with the finding on valuation but also record the adjustment of the gains to future years and the claim under Section 54F of the Act. The escapement of income at the hands of the seller of the shares, the proceeds of which were later utilised to acquire capital assets to thus claim deduction, could as well be a diversion of income, assessable to tax under the guise of sale proceeds which, in the present case, assumes relevance for reason of the sale proceeds being far above the actual value of the shares. It is settled law that the AO must have some tangible material to conclude that there is escapement of income, and that the reasons must have a live link with the formation of the belief. The tangible material in the present case is the report of the Investigation Unit, Noida, which concluded, prima facie, that the shares of company no. 1 and company no. 2 respectively were overvalued. The expression “reason to believe” cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The present case is not one wherein it could be said that the AO had only a vague feeling on the basis of which he recorded that proper investigation was necessary. We are of the view that a conclusion that the truth of the alleged transactions needs to be investigated is not the same thing as having reasons, post investigation, to issue a notice. Where an officer records only that a proper investigation is necessary, the investigation is yet to be done, and the notice is issued in order to carry it out. The present case stands on a different footing. The investigation had already been carried out by the Investigation Unit, Noida, before the reasons were recorded, and its conclusion on the value of the shares is set out in the reasons, along with the other material and the belief formed by the respondent on that basis.

With respect to the argument of the appellants that the issuance of the impugned notice under Section 148 of the Act amounted to a change of opinion, we shall first look into the case of Mr. Nitin Sabharwal. In his case, the returns for the two AYs in question were accepted as such, and an intimation was sent to him under Section 143(1) of the Act. In CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., reported in (2008) 14 SCC 208, this Court held that an intimation under Section 143(1) of the Act cannot be treated as an order of assessment. This Court observed that, under Section 143(1), the AO has to pass an assessment order if he decides to accept the return, whereas, under the amended provision, an intimation is sent instead. It was further observed that the acknowledgement of a return, which is deemed to be an intimation, is done mostly by ministerial staff and not by the AO, and that no assessment can be said to be done by them. It was thus held that, there being no assessment under Section 143(1), the question of change of opinion does not arise. Applying this to the case of Mr. Nitin Sabharwal, the returns for the two AYs in question were accepted by an intimation under Section 143(1) of the Act, and no assessment was framed. Consequently, there was no occasion for the AO to form any opinion in the first place. Therefore, there is no question of change of opinion in his case as far as the notice under Sections 147 and 148 of the Act is concerned. The relevant observations made by this Court in Rajesh Jhaveri (supra) are as under:

(Emphasis Supplied)

As far as the case of Mr. Chetan Sabharwal is concerned, he filed his ITR for AY 2008-09 on 25.09.2008 declaring a total loss of Rs. 90,37,369/-. A sum of Rs. 37,64,40,000/- was shown under the head ‘sundry creditors’, which included Rs. 37,62,50,000/- being the liability in the name of the buyer company. A notice under Section 143(2) of the Act was issued on 09.08.2009. The AO also issued notices under Section 133(6) of the Act to company no. 1, company no. 2 and the buyer company, all of whom filed their replies and documents. Thereafter, on 20.12.2010, the AO framed the assessment order under Section 143(3) of the Act, which stated that “after examination of the submissions of the assessee and discussion with the Authorised Representative of the assessee, assessed at loss of Rs. 90,37,369/- under Section 143(3) of the Act”. The ITR was thus accepted without any change. For AY 2009-10, the appellant filed his ITR declaring a net income of Rs. 1,17,21,750/-, in which inter alia, the LTCG on the sale of the shares of company no. 1 and company no. 2 was declared, and the capital gain was deposited under the Capital Gains Account Scheme. On 19.12.2011, the AO framed the assessment order, discussing various issues, but there was no discussion in it on the LTCG. Additionally, in the inquiry carried out by the AO, the factum of the undervaluation was suppressed, and it came to light only on the investigation carried out, which further negates the case of “change of opinion”.

Having said so, we are of the view that the original assessment orders for both AY 2008-09 and 2009-10 respectively under Section 143(3) of the Act do not indicate that the AO formed any opinion on the matters which form the basis of the present reopening. In view of the principles discussed above, a “change of opinion” presupposes a conscious application of mind and the formation of an opinion during the original assessment proceedings, and the court must verify whether the earlier assessment has, either expressly or by necessary implication, expressed an opinion on the matter which is the basis of the alleged escapement of income. The reasons recorded in the present case rest on the value of the shares as against the cost of land and building, the investment of the sale proceeds in the property at Sikandara Road, the adjustment of the gains to future years and the claim under Section 54F of the Act. The assessment order for AY 2008-09 in the present case is a bare acceptance of the returned income as it is. As held in Sanand Properties (supra), in the absence of any inquiry or adjudication on the specific aspect, the plea of change of opinion is legally untenable. Where no opinion was formed in the first instance, the revenue is not precluded from reopening upon the discovery of facts suggesting that income has escaped assessment, and the notice here rests on the report of the Investigation Unit, Noida, which came after the assessment. Consequently, even in the case of Mr. Chetan Sabharwal, in view of the above, it cannot be said that the reason to believe constitutes a change of opinion.

In view of the above discussion, we are of the firm view that the impugned notice dated 31.03.2015 issued by the AO under Section 148 of the Act, for initiating reassessment for AY 2008-09 and AY 2009-10, was issued on reasons duly recorded and is valid. The reasons rest on tangible material, namely the report of the DGIT Investigation Unit, Noida, which inter alia concluded that the shares of company no. 1 and company no. 2 were overvalued when compared with the cost of their land and building, and they have a rational nexus and a live link with the belief formed by the AO. No case of change of opinion is made out either. In the case of Mr. Nitin Sabharwal, the returns were accepted by an intimation under Section 143(1) of the Act, so no opinion was formed. In the case of Mr. Chetan Sabharwal, the assessment orders under Section 143(3) of the Act reflect no opinion, expressly or by necessary implication, on the matters on which the notice rests, which came to light afresh through the investigation report after the assessment.

In view of the foregoing and considering the totality of the circumstances, the question formulated by us for our determination is answered as follows:

In view of the above, the appeals fail and are hereby dismissed.

Pending applications, if any, shall stand disposed of.